Ep 006 - Layer 1 vs Layer 2
Nerd Cafe
Last updated
Nerd Cafe
Last updated
This briefing document provides an overview of blockchain layers, specifically focusing on Layer 0, Layer 1, Layer 2, and Layer 3, based on the provided sources. It reviews the main themes, important ideas, and key facts related to each layer and their role in addressing the challenges faced by blockchain technology, particularly scalability.
The initial need for blockchain technology arose from the limitations and drawbacks of traditional centralized systems that rely on intermediaries like banks, governments, and lawyers. These intermediaries, while facilitating transactions and governance, often became expensive and dictated processes, not always acting in the best interest of the individuals.
The invention of blockchain technology offered a decentralized alternative, enabling peer-to-peer transactions and interactions without the need for trusted third parties. Early examples include Bitcoin, designed as decentralized money, and Ethereum, a decentralized computer allowing for the creation of smart contracts and decentralized autonomous organizations (DAOs).
However, a significant problem emerged with this nascent technology: scalability. Early blockchains, like Bitcoin, could only process a very limited number of transactions per second (around 7 TPS for Bitcoin), significantly hindering their potential for mass adoption when compared to traditional systems like Visa (processing 20,000 TPS).
The challenge of scaling decentralized networks led to the concept of the Blockchain Trilemma. This belief suggests that a decentralized network can only effectively achieve two out of three key benefits at a given time: decentralization, scalability, and security.
Decentralization: Refers to whether the network is controlled by a few entities or distributed among many.
Scalability: The ability to handle a high volume of transactions.
Security: How secure the data on the blockchain is from various forms of attack.
The trilemma implies that if security is a constant, increasing scalability might require sacrificing decentralization, and vice versa. The sources highlight that this trilemma has not been definitively proven or disproven, and finding ways to scale without compromise is a key goal for blockchain development.
Different blockchain projects have attempted to solve the scalability problem by structuring the network into various layers. The provided sources primarily discuss Layers 0, 1, 2, and 3.
3.1. Layer 0: The Foundational Infrastructure:
Layer 0 refers to the underlying components that make blockchain technology possible. These are the fundamental physical and intellectual infrastructures.
Definition: "Layer zero refers to the components that helps to make the blockchain a reality these are the physical and intellectual infrastructure of the blockchain."
Components: "They include the hardware the internet and the human thought process and the concept that went into building the blockchain."
Role: Provides the base on which Layer 1 blockchains are built.
3.2. Layer 1: The Base Blockchain Network:
Layer 1 is the foundational layer, representing the main blockchain network where transactions are directly processed, validated, and finalized on its own chain.
Definition: "Layer 1 is the foundation layer of the blockchain a blockchain is layer one when it processes and finalizes transaction on its own blockchain." "Layer 1 refers to the base layer or main blockchain network. This is the original blockchain architecture where transactions are validated, recorded, and secured."
Examples: Bitcoin (BTC), Ethereum (ETH), Solana (SOL), Cardano (ADA), Avalanche (AVAX).
Responsibilities:Consensus mechanism (e.g., Proof of Work, Proof of Stake).
Transaction validation.
Security.
Token creation and smart contracts (especially on platforms like Ethereum).
Scaling Approaches (Layer 1 Scaling Solutions): Modifications to the base protocol to increase throughput.
Increasing block size (e.g., Bitcoin Cash).
Changing consensus mechanisms (e.g., Ethereum's transition from Proof of Work to Proof of Stake).
Sharding (e.g., Ethereum 2.0, splitting the network into smaller chains).
Limitations:Scalability: Limited number of transactions per second (e.g., Bitcoin: ~7 TPS, Ethereum: ~15-30 TPS before upgrades).
High fees: Due to network congestion.
Latency: Time taken to confirm transactions can be long.
Pros: "Strongest security and decentralization," "Native token and consensus mechanism."
Cons: "Slower, expensive during peak usage, harder to upgrade."
3.3. Layer 2: Scalability Solutions Built on Top of Layer 1:
Layer 2 refers to secondary frameworks or protocols built on top of Layer 1 to improve scalability and performance without altering the base layer. They "inherit its security improves its functionality by taking some of the loads off."
Definition: "Layer 2 refers to secondary frameworks or protocols that are built on top of Layer 1 to improve scalability and performance without altering the base layer."
Purpose: "Handle transactions off-chain and then settle them on Layer 1," "Reduce congestion, fees, and transaction time."
How it Works: "Process transactions off-chain or in a more efficient manner before settling them on L1." They "batch transactions and submit proofs to L1."
Examples: Lightning Network (Bitcoin), Optimism and Arbitrum (Ethereum), Polygon (often treated as Layer 2, though technically a sidechain).
Scaling Strategies (Layer 2 Scaling Solutions):Rollups: Bundle many transactions off-chain and submit a compressed summary or proof on-chain.
Optimistic Rollups (Arbitrum, Optimism): Assume transactions are valid and use fraud proofs if challenged (can have withdrawal delays).
ZK-Rollups (zkSync, StarkNet, Polygon zkEVM): Use zero-knowledge proofs for instant finality.
State Channels (Bitcoin Lightning Network, Ethereum's Raiden): Users transact off-chain in payment channels and settle the final state on Layer 1. "Instant, feeless micropayments."
Sidechains (Polygon PoS, Ronin): Independent blockchains connected to Layer 1 via bridges, with their own consensus mechanisms. "High speed, low fees."
Validiums (StarkEx, Polygon Miden): Similar to ZK-Rollups but data is stored off-chain, offering high throughput but requiring trust in data availability providers.
Benefits:"Higher Throughput & Lower Fees." Can handle thousands or even millions of transactions per second (e.g., Lightning Network potentially up to 1,000,000 TPS within a channel).
"Faster, cheaper transactions."
"Frees up Layer 1 from congestion."
Security: "Security Relies on L1," "Inherits security from Layer 1."
Pros: "High throughput, low fees, faster transactions."
Cons: "May sacrifice some decentralization or rely on Layer 1 security," Adds complexity.
3.4. Layer 3: The Application Layer:
Layer 3 is where decentralized applications (dApps) are built, giving the blockchain real-world application.
Definition: "Layer three Layer three is the application layer this is where dabs are built this layer gives the blockchain real world application."
Examples of dApps: Decentralized exchanges (Uniswap, PancakeSwap), lending and borrowing platforms (Compound), blockchain ETFs (TenSet), and all DeFi projects.
Building on Layers: Layer 3 networks can be built on either Layer 1 or Layer 2.
The sources emphasize that Layer 1 and Layer 2 solutions are not mutually exclusive but rather work together to achieve a more scalable and usable blockchain ecosystem.
Necessity: "L1 ensures security and decentralization. L2 enables scalability and usability without compromising L1’s security."
Comparison: A key difference lies in their approach to scalability. Layer 1 scaling involves modifying the base protocol, which can be complex and requires consensus. Layer 2 scaling adds layers on top, offering more flexibility and often quicker implementation for specific use cases.
Security Model: While Layer 1 security is intrinsic to its protocol and consensus, Layer 2 inherits security from Layer 1 through mechanisms like smart contracts and proofs. However, some Layer 2 solutions, particularly sidechains, may rely on their own validators and consensus, introducing potential centralization risks compared to the base Layer 1.
Use Cases: Layer 1 is best suited for core blockchain operations, large-value transactions, and deploying smart contracts where maximum security is paramount. Layer 2 is ideal for fast, cheap, and frequent transactions, dApps with high user interaction, DeFi, gaming, and micropayments.
The concept of "Altchains" is introduced as an acronym for any blockchain that is not Bitcoin or Ethereum. These emerged in response to Ethereum's scalability and transaction fee issues.
Definition: "Alternative blockchains alt chains is an acronym for any blockchain that isn't bitcoin or ethereum."
Motivation: Arose due to Ethereum's scalability and transaction fee issues, with developers aiming to create more scalable and low-cost alternatives.
Examples: Avalanche and Solana are cited as examples of altchains.
Relationship to Layers: Altchains can exist as Layer 1 blockchains (like Solana and Avalanche) or incorporate Layer 0 and Layer 2 solutions.
Understanding blockchain layers is crucial to grasping how the technology addresses the scalability trilemma.
Layer 1 provides the foundational security and decentralization, while Layer 2 offers vital scalability solutions built on top.
Different Layer 1 and Layer 2 solutions employ various consensus mechanisms and scaling strategies with their own trade-offs in terms of speed, cost, security, and decentralization.
The interplay between Layer 1 and Layer 2 is essential for achieving mass adoption of blockchain technology.
Future trends include Ethereum's "rollup-centric" roadmap, aiming for high throughput with L2s and data availability layers, the growth of ZK-Rollups, and the development of interoperability solutions to connect different chains and layers.
This briefing document provides a concise overview of the key concepts and relationships between blockchain layers as presented in the provided sources. A deeper dive into specific Layer 1 or Layer 2 solutions would require further analysis of individual projects.